- Excerpt from: Consequences of the Failure of a Secured Creditor to File a Timely Proof of Claim:

Most of us are familiar with the concept that liens generally pass through a bankruptcy. But what happens to the secured creditor’s claim if the creditor fails to file a proof of claim on or before the bar date? Two recent cases give us some guidance. In In re Shelton, No. 12-3555 (8th Cir. Nov. 4, 2013), the Eighth Circuit held that a late claim can be disallowed without extinguishing the underlying lien. So, an action in personam is extinguished but an action in rem remains. But what does that mean from a plan confirmation standpoint? According to the court in In re Batista-Sanechez, No. 12-48247 (Bankr. N.D. Ill. Oct. 25, 2013), that means that the secured creditor loses the right to vote on the debtor’s plan and to a distribution. Of course, since the lien claim survives that creates complications for the debtor in getting a plan confirmed. The court said that the lien claim will have to be separately classified since the secured creditor will be deemed to reject the plan because it cannot vote. Consequently, the debtor must satisfy the cramdown provisions to confirm the plan. Hopefully, we will get more clarity on this puzzling issue soon.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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